Should I be a limited company or sole trader in 2026/27?

For most self-employed people earning above around £30,000–£35,000, a limited company will be more tax efficient than operating as a sole trader in 2026/27. The main saving comes from paying yourself a low salary and taking profits as dividends, which avoids Class 4 National Insurance and benefits from lower dividend tax rates. Below that threshold, the admin burden and accountancy cost of a limited company may outweigh the saving. Use this calculator to find your crossover point.

What National Insurance does a sole trader pay in 2026/27?

In 2026/27, self-employed sole traders pay Class 4 NI at 6% on profits between £12,570 and £50,270, and 2% on profits above £50,270. Class 2 NI was abolished from April 2024 — sole traders with profits above £6,725 are treated as having paid Class 2 contributions automatically, protecting their State Pension entitlement without any payment.

What are the advantages of a limited company over sole trader?

The main advantages of a limited company over a sole trader are: lower overall tax above a certain income threshold (through salary and dividend extraction), limited liability protecting personal assets, easier to bring in investors or co-directors, and a more professional image with some clients. The main disadvantages are higher accountancy costs, more admin (annual accounts, confirmation statements, Companies House filings), and less flexibility when extracting money from the business.

What are the Class 4 NI rates for 2026/27?

For the 2026/27 tax year, Class 4 NI rates for sole traders and self-employed individuals are 6% on profits between £12,570 and £50,270, and 2% on profits above £50,270. These rates apply in addition to income tax and are calculated on the same self-employment profit figure.

Ltd vs Sole Trader Tax Calculator 2026/27

Your Numbers

Annual Profit / Turnover (£)

Business Expenses — excl. salary for Ltd (£)

Pension Contributions (£/year)

Ltd — Salary Strategy

Director Salary

Options

50/50 Spouse Dividend Split (Ltd) If your spouse or civil partner is a shareholder in your Ltd company, you can split dividends 50/50. This uses their tax-free allowance and basic-rate band, often saving £1,000–£3,000+ in tax per year. HMRC requires the split to be genuine — your spouse must hold actual shares.

Employment Allowance (2nd employee) Employment Allowance reduces your Ltd company's Employer NI bill by up to £10,500 per year (2026/27). To qualify, you must have at least 2 employees on payroll — a sole director paying themselves alone does not qualify. Toggle on if you employ a second person (e.g. a spouse or staff member).

2026/27 Rates Used
Income Tax: 20% / 40% / 45%
Class 4 NI (sole trader): 6% (£12,570–£50,270), 2% above
Class 2 NI: abolished April 2024
Employer NI (Ltd): 15% above £5,000
Corp Tax: 19% (≤£50k) → 25% (≥£250k) + marginal relief
Dividends: £500 allowance · 10.75% / 35.75% / 39.35%

// Ltd Company

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// Sole Trader

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// Take-home vs Tax Burden

Ltd Company

Take-home—

Total tax—

Sole Trader

Take-home—

Tax + NI—

Ltd Sole Trader

⚠ Estimates only. Based on HMRC 2026/27 confirmed rates for England, Wales & Northern Ireland. Ltd assumes optimal salary + dividend extraction. Sole trader profit is after expenses. Class 2 NI abolished April 2024 — no payment required above £6,725 (State Pension entitlement protected automatically). Corporation tax applies marginal relief £50k–£250k. Personal allowance tapers above £100k. Not financial advice — speak to an accountant for your specific situation.

Thinking of going limited?

AccTek can advise on the right structure for your business and handle your accounts and tax — from just £19.99/month.

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Ltd company vs sole trader: which is more tax efficient in 2026/27?

For most self-employed people in the UK, a limited company becomes more tax efficient than operating as a sole trader once annual profits exceed approximately £30,000–£35,000. Below that level, the accountancy costs and administrative burden of running a company often outweigh the tax saving. The crossover point shifts depending on your expenses, pension contributions, and whether you can split dividends with a spouse — use the calculator above to find your specific figure.

The key tax advantage of a limited company is that profits distributed as dividends are not subject to National Insurance. A sole trader pays Class 4 NI at 6% on profits between £12,570 and £50,270, plus 2% above that — on top of income tax. A limited company director drawing the same money as dividends pays dividend tax at 10.75% (basic rate) instead, with no NI at all.

Sole trader National Insurance in 2026/27

Class 2 NI: Abolished from 6 April 2024. No payment required. Sole traders with profits above £6,725 automatically receive State Pension credit.
Class 4 NI: 6% on profits between £12,570 and £50,270
Class 4 NI (upper): 2% on profits above £50,270

This means a sole trader earning £60,000 profit pays Class 4 NI of approximately £2,256 on top of their income tax bill — a cost that a limited company director avoids entirely by taking equivalent income as dividends.

When does it make sense to go limited?

Incorporating is typically worth considering when your self-employed profits consistently exceed £30,000–£35,000 per year, when you want limited liability protection for your personal assets, when you need to retain profits in the business rather than draw everything immediately, or when clients or contracts require you to operate through a company. The calculator above models your specific situation — including the effect of pension contributions, business expenses, and spouse dividend splitting.

Costs to factor in when comparing structures

Accountancy fees are typically higher for limited companies (Companies House filings, corporation tax returns, payroll)
Confirmation statements and annual accounts must be filed at Companies House
Self Assessment is still required for directors in addition to company filings
AccTek's fixed monthly fee covers all of this from £19.99/month — making the net saving even clearer

Related tools & resources

→ Ltd vs PAYE Calculator 2026/27Compare Ltd take-home against salaried PAYE employment → Small Business Accountants UKLimited company accounts, corporation tax & payroll for SMEs → Startup Accountant UKCloud accounting, tax planning & Fractional CFO for startups → Contractor Accountant UKIR35 compliance, tax-efficient structures & reporting → Sole Trader vs Ltd: Full GuideIn-depth comparison of UK business structures → NHS Pension CalculatorAnnual allowance & tapered allowance for locum doctors → Get Your Instant QuoteFixed-fee Ltd company accountancy from £19.99/month

Ltd Company vs Sole Trader
Tax Calculator

Thinking of going limited?

Ltd company vs sole trader: which is more tax efficient in 2026/27?

Sole trader National Insurance in 2026/27

When does it make sense to go limited?

Costs to factor in when comparing structures

Related tools & resources

You’re in good hands

Ltd Company vs Sole TraderTax Calculator

Thinking of going limited?

Ltd company vs sole trader: which is more tax efficient in 2026/27?

Sole trader National Insurance in 2026/27

When does it make sense to go limited?

Costs to factor in when comparing structures

Related tools & resources

You’re in good hands

Ltd Company vs Sole Trader
Tax Calculator